SPECIAL FEATURE: Putting renters in the picture can help lenders make the right decisions
Jonathan Westley is manager director, consumer information, at Experian
The UK’s private tenants collectively pay a monthly rental bill of £3.6bn. When this is coupled with a general trend of rising house prices over the last few years, it’s easy to understand why getting on the property ladder has become arguably the greatest challenge facing the millennial generation.
To put the figure into context, our research found the average monthly rent to be £695, although it’s as high as £1,250 a month in the London commuter belt. As a result, 71% of renters have had to make sacrifices in their lifestyle to meet rental payments, while 60% have gone without a holiday or missed out on leisure activities to make sure they can keep their rented home.
One third of private renters – that’s about 1.65 million people – can be classified as frustrated first-time buyers, who would like to get on the property ladder but have struggled to raise a deposit or progress their application for another reason.
It falls on lenders to be the ‘gatekeepers’ who ultimately decide whether someone is in the right financial shape to take on a mortgage. There is an abundance of evidence which shows lenders are proactively helping people to take that first step wherever they can.
Many offer a range of innovative flexible deals for first-time buyers, allowing them to fix rates for a number of years so they can budget with certainty in the longer term, or use an attractive tracker rate while interest rates are low. All the while, lenders have also made provisions for smaller deposits and embraced government schemes to smooth the pathway.
However, for lenders to be entirely fair to their customers, they must decide whether the loans they make will be affordable in the long term. To arrive at the best decisions, lenders need to have the best information available about a mortgage applicant’s monthly outgoings and their track record with credit at their disposal.
Bank accounts, loans, credit cards and utility bills all help to paint the picture of someone’s payment performance. But another key indicator on how an applicant might react to mortgage repayments can be drawn from the regular monthly payments they already make for their rented home.
The Rental Exchange recognises the rental payments made by tenants, allowing them to strengthen their credit histories as they prepare for a mortgage application. Private tenants can sign up now to have their information recorded, while more than one million social tenants have already registered. Lenders and consumers alike will be able to see rental information on Experian credit reports when it is added later this year.
Our survey found of 74% of frustrated first-time buyers want to see rental payments contribute to their report, while 83% of those looking to buy in the next five years also feel it should be taken into account.
By using all of the available information, lenders can put themselves in the strongest possible position to make decisions which is right for their business, but also the first-time buyers they are so keen to help realise the dream of owning their first home.